An Ontario court has dismissed a lawsuit brought by a now-bankrupt investment dealer seeking fees from a former investment banking client.
The Ontario Superior Court of Justice ruled against Octagon Capital Corp. in its suit against Niko Resources Ltd. Octagon claimed it was entitled to fees from Niko in connection with a debt restructuring.
Octagon was declared bankrupt in December 2015.
According to the court’s decision, Niko hired Octagon to arrange debt financing with JB Management Inc. in 2013. One of the terms of their engagement agreement was that Niko agreed to retain Octagon on any “further financing” with JGB. A few months later, Niko restructured all of its debt obligations. As part of that restructuring, it converted some of the debt owed to JGB into a new debt instrument with different terms, a transaction that was handled by two other investment firms.
Octagon asked the court to rule that debt conversion constitutes “further financing,” and it sought an order enforcing the agreement, entitling it to a fee in connection with that transaction. However, the court sided with Niko, finding that JGB did not supply Niko with any additional funding as a result of the restructuring, and the requirement to use Octagon did not apply.
“Considering the ordinary meaning of words used as well as the surrounding circumstances,” the court concluded in its ruling that “the phrase ‘further financing’ means the supply of additional funds and does not include the conversion of an existing debt instrument.”
“Octagon was not entitled to be retained … because JGB did not supply any additional money to Niko in the December 2013 conversion beyond that which it had already lent to Niko,” the court added. As a result, it dismissed Octagon’s application.